Unintended Consequences of Country-by-Country Reporting: Evidence from Auditor Behaviour

Prof. Duncan LIU, Assistant Professor, University of Macau

Date: 23 May 2023 (Tuesday)
Time: 10:30 am – 12:00 pm
Venue: E22-G015
Host: Prof. Rachel MA, Assistant Professor in Finance
Online registration: https://umac.au1.qualtrics.com/jfe/form/SV_6R4uTUqVaNSlfD0



Using a sample of cross-country observations, we examine the impact of the implementation of country-by-country reporting (CbCr) by the European Union in 2016 on audit fees. We posit that on one hand increased tax transparency increases firms’ demand for audit effort and auditors’ engagement risk, hence increasing audit fees. On the other hand, increased tax transparency reduces firms’ aggressive tax avoidance activities and incentivises firms to better document and support their tax position, hence reducing audit fees. Using a difference-in-differences approach we find an increase in audit fees following the implementation of CbCr reporting. This increase in audit fees is larger for firms subject to greater oversight and firms with lower cash effective tax rates in the pre-CbCr period. Further analysis suggests that audit quality improved following the implementation of CbCr and that auditors of CbCr firms report more tax-related key audit matters relative to auditors of non-CbCr firms.


Prof. Duncan LIU is an Assistant Professor of Accounting at University of Macau. He earned his PhD from Lancaster University Management School and held a visiting position at Tippie College of Business, University of Iowa. He has a broad research interest in financial reporting and audit, with a focus on (unlisted) private firms, spillover effects, and real effects. His research has been accepted for publication in Journal of Accounting Research and presented at leading academic conferences organized by American Accounting Association, Canadian Academic Accounting Association, and European Accounting Association.

All are welcome!